Central Bank plays down concern of fund exodus

TAIPEI, Taiwan -- Although the net outflow of Taiwan's financial accounts for the October-December period hit a quarterly high, the Central Bank said on Friday this only shows the ability of Taiwanese businesses and individuals to invest overseas.

The Central Bank released a quarterly balance of payment Thursday showing that Taiwan's financial accounts, which reflect the flows of direct investment and portfolio investment, registered a net outflow of US$13.88 billion in the fourth quarter of last year.

According to the Central Bank, the net outflow of Taiwan's financial accounts for the October-December period hit a quarterly high, the 14th consecutive quarter in which the financial account recorded a net outflow.

Between the third quarter of 2010 and the fourth quarter of 2013, Taiwan's net financial account outflow totaled US$113.49 billion, or about NT$3.4 trillion, according to central bank statistics.

The result weighed in the already-weak market sentiment in Taiwan's share market, causing the Central Bank to issue a press release yesterday to mitigate the worry.

The official statement attributed the fund exodus to an increase in overseas investment by local life insurance companies, while the public in Taiwan had a growing appetite for putting their money into bonds and mutual funds overseas.

A Central Bank official told the United Evening News that many countries whose current accounts posted a surplus usually have a deficit in their financial accounts.

Korea, Singapore See Net Capital Outflow in 2013

According to the Central Bank, the current account of South Korea posted a surplus of US$14.5 billion in 2013, while the financial account showed a net outflow of US$57.9 billion.

Singapore's 2013 current account registered a surplus of US$18.2 billion while the financial account showed a net outflow of US$38.9 billion.

Yuanta-Polaris Research Institute president Liang Kuo-yuan (梁國源) told the United Daily News that with Taiwan's benchmark interest rate lingering at a low point, the continuous net flow of the financial account is not unreasonable.

Liang added that the large net outflow of the financial account is also the result of Taiwan lacking attractive investment instruments to persuade investors to keep their money in the local market.

The local securities sector has repeatedly urged the government to abolish a capital gains tax for major investors in the local market who trade shares valued at NT$1 billion or more a year in an attempt to lure them to remit their funds back to Taiwan.

Some analysts have claimed that the levy of taxes on the stock market shows that the government has not done its utmost to support the local market and that the fund exodus resulting from the tax has hurt investor sentiment and dragged down daily turnover of the market.

However, some analysts hold an upbeat attitude toward the fund outflow, saying that the exodus is expected to improve the situation in which the Taiwan financial market has been awash in idle money and has been unhealthy, according to Taiwan-based Commercial Times.

They said the fund outflow is expected to reduce upward pressure on the Taiwan dollar against the U.S. dollar at a time when the Central Bank is eager to keep the local currency cheap in a bid to boost the country's global competitiveness.

Moreover, they said that a decline in liquidity due to the fund outflow is expected to help reduce Taiwan's inflationary pressure, while the high-flying property market is likely to rein itself in due to reduced speculative money.